How Big is the Economic Bomb? Big, Very Big

In the after math of the 2008 crisis, and after “We the People” bailed out the “Too Big to Fail Banks” to the tune of over $14 Trillion dollars, our CONgress vowed they would never let that happen again. Yet since 2008, this very same CONgress has blocked every effort to regulate the banks and audit the FED. The result of the 2008 crisis has had our economy stagnated for the last seven years and the very same people that caused the last economic crisis have created a $278 TRILLION dollar derivatives time bomb that could go off at any moment.

According to Michael Snyder, when this absolutely colossal bubble does implode, we are going to be faced with the worst economic crash in the history of the United States.  It is dangerously bad, as you will see below, those banks have actually gotten far larger since then.  So now we really can’t afford for them to fail.  The six banks that we are talking about are JPMorgan Chase, Citibank, Goldman Sachs, Bank of America, Morgan Stanley and Wells Fargo.  When you add up all of their exposure to derivatives, it comes to a grand total of more than 278 trillion dollars!  But when you add up all of the assets of all six banks combined, it only comes to a grand total of about 9.8 trillion dollars.

In other words, these “too big to fail” banks have exposure to derivatives that is more than 28 times greater than their total assets!  To put this in perspective, it is like you having $100,000 in assets and owing more than $2.8 million dollars! Do you think you could get away with that? This is complete and utter insanity, and yet nobody seems too alarmed about it.  For the moment, those banks are still making lots of money and funding the campaigns of our most prominent politicians.  Right now there is no incentive for them to stop their incredibly reckless gambling so they are just going to keep on doing it.

So precisely what are “derivatives”?  Well, they can be immensely complicated, but on a very basic level, a “derivative” is not an investment in anything.  When you buy a stock, you are purchasing an ownership interest in a company.  When you buy a bond, you are purchasing the debt of a company.  But a derivative is quite different.  In essence, most derivatives are simply bets about what will or will not happen in the future.  The big banks have transformed Wall Street into the biggest casino in the history of the planet, and when things are running smoothly they usually make a whole lot of money, and just like in 2008, things can go very wrong very fast.

Today, the “too big to fail” banks are being even more reckless than they were just prior to the financial crash of 2008. As long as they keep winning, everyone is going to be okay.  But when the time comes that their bets start going against them, it is going to be a nightmare for all of us.  Our entire economic system is based on the flow of credit, and those banks are at the very heart of that system. In fact, the five largest banks account for approximately 42 percent of all loans in the United States, and the six largest banks account for approximately 67 percent of all assets in our financial system. So that is why they are called “too big to fail”.  We simply cannot afford for them to go out of business.

Our politicians promised that something would be done about this.  But instead, the four largest banks in the country have gotten nearly 40 percent larger since the last time around.  The following numbers come from an article in the Los Angeles Times

JPMorgan Chase

Total Assets: $2,573,126,000,000 (about 2.6 trillion dollars)

Total Exposure To Derivatives: $63,600,246,000,000 (more than 63 trillion dollars)

Citibank

Total Assets: $1,842,530,000,000 (more than 1.8 trillion dollars)

Total Exposure To Derivatives: $59,951,603,000,000 (more than 59 trillion dollars)

Goldman Sachs

Total Assets: $856,301,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $57,312,558,000,000 (more than 57 trillion dollars)

Bank Of America

Total Assets: $2,106,796,000,000 (a little bit more than 2.1 trillion dollars)

Total Exposure To Derivatives: $54,224,084,000,000 (more than 54 trillion dollars)

Morgan Stanley

Total Assets: $801,382,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $38,546,879,000,000 (more than 38 trillion dollars)

Wells Fargo

Total Assets: $1,687,155,000,000 (about 1.7 trillion dollars)

Total Exposure To Derivatives: $5,302,422,000,000 (more than 5 trillion dollars)

A majority of these derivatives are focused in the energy and financial sectors, and what we are seeing now is great volatility in both of these sectors. Demand for oil has been grossly miscalculated and when the OPEC nations decided to continue to produce at the same levels after the demand declined, you saw what happened to oil prices at the pump. This is further complicated by the cost of recovering oil from fracking in the US. This bomb is about to go BOOM!

Further complicating the picture is the moves being made by the BRICS and the newly developed AIIB. The Asian Infrastructure Investment Bank (AIIB) is an international financial institution that was proposed by the government of China. The purpose of the multilateral development bank is to provide finance to infrastructure projects in the Asia region. AIIB is regarded by some as a rival for the IMF, the World Bank and the Asian Development Bank (ADB), which are regarded as dominated by developed countries like the United States. The United Nations has addressed the launch of AIIB as “scaling up financing for sustainable development” for the concern of Global Economic Governance. Chinese Premier Li Keqiang affirms AIIB cooperative stance. As of April 2, 2015, almost all Asian countries and most major countries outside Asia had joined the AIIB, except the US, Japan (which dominated the Asian Development Bank, formed in 1966) and Canada. North Korea’s and Taiwan’s applications were rejected. This is a serious threat to the US dollar as the international trade currency and increases the exposure of the big banks in a way that is not yet completely discernible, other than if AIIB has its way, the dollar is in for a big devaluation. Already the AIIB has proposed an alternative to the dollar, called the SDR, which would be asset based something like the following manner.

SDR

And finally, Greece sits on the edge of collapsing the Euro. This will occur if Greece finds some or all of its debt to the ECB and IMF are odious. Odious Debt is: In international law, odious debt is a legal theory which holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation, should not be enforceable. Such debts are thus considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state. In some respects, the concept is analogous to the invalidity of contracts signed under coercion.

Today Odious Debt is now a reality in Greece, where Zoi Konstantopoulou, the head of the Greek parliament and a SYRIZA member, released two videos which have promptly gone viral, designed to promote the investigative parliamentary committee to look into the circumstances surrounding the signing of the country’s two bailout agreements that led Greece to implement its austerity measures.

According to Greek Reporter, Konstantopoulou has said that the newly established “Debt Truth Committee,” will investigate how much of the debt is “illegal” with a view to writing it off. Proving that this is more than just a populist stunt, during a vote that took place early yesterday, out of the 300 Greek MPs, 156 voted in favor of establishing the public debt auditing committee. “The committee will examine how Greece entered into the bailout agreements with its international lenders, as well as any other matters related to the memoranda’ implementation,” SYRIZA Parliamentary Secretary Christos Mantas had explained earlier. “We are fulfilling our commitment and the social demand to explore the causes and responsibilities of an unprecedented crisis that devastated the vast majority of society,” Mantas added. If the Greek “Debt Truth Committee” indeed persists with determining how much of its debt is legal and enforceable, and ultimately decides to rescind some (or all) of it, the only question is how long until other countries around the world, all of which are burdened with massive, untenable debt loads across the government, financial and household sectors, decide it is time to do the same and declare a fresh start.

So given these current situations, it is very easy to see just how crazy these “Big Banks” are, and how they are going to come crashing down, given their current exposures. There isn’t enough money in existence to “bail them out” and the impacts on the world’s economy will be felt for decades. It really isn’t a matter of if this current economic situation is going to come crashing down, it is only a matter of when, and “when” looks real big and up close right now.

The Big Six Banks Just Get Bigger and Bigger

Back in 2008 we were held hostage as a people and eventually wound up forking nearly $17 Trillion dollars over to the banks after their casino games failed. We were told if we didn’t the world economy would collapse. These banks were just too big to fail. So now over five years have passed and our miserable congress failed to enact any meaningful legislation to prevent a repeat situation from occurring. Where the money really went will be an upcoming article, but for now let’s just look at those banks to see how big they are today. The numbers will shock you.

First the only banks that did not survive were the community banks serving their local communities. In 1985, there were more than 18,000 banks in the United States.  Today, there are only 6,891 left. The six largest banks in the United States (JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley) have collectively gotten 37 percent larger over the past five years.

The U.S. banking system has 14.4 trillion dollars in total assets.  The six largest banks now account for 67 percent of those assets and all of the other banks account for only 33 percent of those assets. JPMorgan Chase, alone, is roughly the size of the entire British economy. The five largest banks now account for 42 percent of all loans in the United States.

Well, since they gotten bigger, they must be in better shape, right? Wrong again. Right now, four of the “too big to fail” banks each have total exposure to derivatives that is well in excess of 40 trillion dollars. That’s $160 Trillion dollars! Their exposure is over TWICE the global GDP and 14 times larger than the US GDP! The total exposure that Goldman Sachs has to derivatives contracts is more than 381 times greater than their total assets.

global GDP

Just think about from your personal financial perspective. If you were in that situation, it would mean your debt was 381 times your assets. In the US, Americans tend to have a low net worth. According to Social Security numbers those under 25 has a net worth of $1475, 25-34 has $8525, 35-44 has $51575, 45-54 has $98350, 55-64 has $180125. So let’s take the 35-44 number of $51575. This would mean you would have debts that totaled $19,650,075! Until you understand this from that perspective you cannot appreciate how totally insane this whole house of cards really is in truth.

The fact is these guys are totally and criminally out of control and no one is doing a single thing meaningful about it and now it is so nuts anyone who would be contemplating action is absolutely fearful to even speak about this insanity.

According to the Bank for International Settlements, the global financial system has a total of 441 trillion dollars worth of exposure to interest rate derivatives, which is nearly 6 times global GDP. Most governments’ coffers have been drained and most pension plans and investment pools are also tapped out.  The FED’s answer to this mess is just to keep printing money at the rate of about $40-60 Billion every month. This is only delaying the inevitable collapse that must come and folks are starting to get antsy that this is going to happen soon, very soon.

insanity1

The only sane approach here is to have a global financial reset and the sooner the better. We can demolish this mess with a single global jubilee along with breaking these behemoths back down to a size where if they wish to act in a risky manner, they will live or die on their sword and the world will continue on without them. This would also eliminate these world-wide austerity programs and allow countries to get back to using their tax dollars for infrastructure, health care, education, and basic science research that will benefit all mankind.

It is important that we all understand these facts and are prepared to act when the time comes again when these con artists and habitual gamblers once again come begging with threats to blow up the economy. We should all just say to our representatives no way will we allow you to use one more penny of our money.  We should be willing to look them straight in the eye and say “Blow it up”! It is only then can we begin to construct a global economy based on honesty, transparency, sound fiscal decisions, and truly market driven economic activity. Don’t buy into the fear factor this time around.